3. Reserve Bank Of India Central Bank of India Established on April 1, 1935 Owned by the Government of India Recommended by Hilton Young Commission To secure monetory stability Started with a paid up share capital of 5 crore The Central Office in Mumbai.
4. Functions of RBI Regulates the issue of currency Exchange Management and Control Statutory Bank of Government Exerts Credit Control Banker’s Bank Action against Erring banks Overall promotion of Commercial Banks
5. Monetary Policy Monetary policy is one of the tools that a national Government uses to influence its economy. Using its monetary authority to control the supply and availablity of money, a government attempts to influence the overall level of economic activity in line with its political objectives. Usually this goal is "macroeconomic stability"
6. Objectives of Monetary Policy Economic Growth Full Employment Price Stability Exchange rate stability Equilibrium in the BOP Developing Banking & Financial Institutions
7. Instruments of Monetary policy Quantitative Open Market operations Bank rate policy Cash Reserve ratio Statutory Liquidity Requirement
8. Instruments of Monetary policy Qualitative Credit Ceilings Provision of Minimum Margin requirement Discriminating interest rates Issue of Directives
11. Economy Price stability and well-anchored inflation expectations while ensuring a monetary and interest rate Renewed focus on credit quality and orderly financial markets conditions in securing macroeconomic conditions GDP growth projection for 2007-08 at around 8.5 per cent
12. Economy Inflation to be contained close to 5.0 per cent during 2007-08 M3 expansion to be contained at around 17.0-17.5 per cent Deposits projected to increase by around Rs.4,90,000 crore Adjusted non-food credit projected to increase by around 24.0-25.0 per cent
13. Monetary Measures Scheduled banks required to maintain CRR of 6.5 per cent with effect from the fortnight beginning April 28, 2007.
14. Financial Markets A ‘Non-Competitive Bidding Scheme’ in the auctions of State Development Loans (SDLs) Average cut-off yield on 182-day Treasury Bills to be used as a benchmark rate for floating rate bonds
15. Financial Markets Revised reporting framework on overseas investments for monitoring capital flows The limit for portfolio investment abroad in listed overseas companies by listed Indian companies enhanced from 25 per cent of net worth to 35 per cent of networth The aggregate ceiling on overseas investment by mutual funds to be increased from US $ 3 billion to US $ 4 billion
16. Credit Delivery Mechanism The risk weight on loans up to Rs.1 lakh against gold and silver ornaments to be reduced to 50 per cent from the existing level of 125 per cent RRBs to be allowed to take up corporate agency business, without risk participation, for distribution of all insurance products A credit guarantee scheme for distressed farmers to be introduced.
17. Credit Delivery Mechanism An evaluation of the bank – self help group (SHG) linkage programme to be conducted through the regional offices of the Reserve Bank with a view to ascertaining the degree of transparency in maintaining the accounts by the SHGs and their adherence to well-accepted best practices The boards of banks are advised to lay down internal principles and procedures so that usurious interest, processing and other charges are not charged.
18. Regional Rural Banks “To combine the local feel and familiarity enjoyed by the co-operatives with the degree of business organization as well as the ability to mobilize deposits characteristic of commercial banks” RRB's declined from 196 in March'05 to 91 in March'08 operating in 25 states across 586 districts with a network of 14,790 branches. The total number of RRB's, declined to 88 as on August'08. RRB's credit-deposit ratio increased from 56% to 60.3% in March'08.
23. RRB'sIncome Statement as on 31st March'08 2006-07 (96 RRBs) Net Income Rs.7663 Cr Expenditure Rs.7038 Cr Net Profit Rs.625 Cr Net NPA Rs.3.46 Cr 2007-08 (90 RRBs) Net Income Rs.9195 cr Expenditure Rs.7766 cr Net Profit Rs.1374 cr Net NPA Rs.3.02 Cr
24. Co-Operative Banks Enlarges the reach of institutional credit both from geographic and socio-economic perspective. Important instrument for achieving greater financial inclusion Focus on revitalisingand strengthening the co-operative banking sector in India. The no. of UCBs declined from 1,813 at end-March 2007 to 1,770 at end-March 2008.
25. Some of the Developmentsin Co-operative Banks Granting of branch licenses to be considered to well-managed and financially sound Urban Co-operative banks (UCBs) The existing relaxed prudential norms applicable to Tier I and Tier II UCBs to be extended by one year. Allow UCBs to undertake insurance business as corporate agents.
26. Commercial Banks Consolidation Interest margins Loans and advances moderated Banks investment in govt. security Deposit growth moderated
28. Summary Commercial Banks Affected by Macroeconomic and RBI policy Less credit creation Affecting all the sectors except services Deposits growth was strong
29. NPA NPA An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. Banks should, classify an account as NPA only if the interest charged during any quarter is not serviced fully within 90 days from the end of the quarter. Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
36. Securitisation Securitisation is the process of pooling and repackaging of homogenous illiquid financial assets into marketable securities that can be sold to investors. Securitisation has emerged as an important means of financing in recent times. 2008-09 2007-08
Sub-standard asset:An asset which has remained NPA for a period less than or equal to 12 months.Doubtful Assets:An asset which has remained in the substandard category for a period of 12 monthsLoss Assets:A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly
During 2007-08, scheduledcommercial banks, both in the public andprivate sectors, raised significantly higherresources from the domestic primary marketas compared with the previous year.In view of goodperformance of banking scrips in thesecondary market, strong financial results ofbanks, the need to raise capital in the face ofthe ensuing Basel II norms and tightening ofprudential norms
Slowdown in GDP growth, particularly industrial growth and sharp rise in domestic inflation appeared to have adversely affecting the bankingstocks.Banking sector stock also came under pressure due to concerns over the global financial turmoil.
